Nonprofit Salaries - How Much is Too Much?

I recently had a Facebook conversation with a friend of a friend who was looking for a cancer charity to donate to. He expressed his frustrations with how much the CEOs of some of these cancer charities were making. I did some research on my own and found that it is very common for nonprofit CEOs to make relatively moderate to high salaries. This then raised the question in my mind, “How much is too much?”

It wasn't the first time this subject had come up. Several Givalike members had expressed concerns about donating to organizations whose CEOs were bringing in $200,000-300,000, and, in some cases, even more than a million dollars. So I decided to do even further research with the goal of determining what exactly the appropriate salary is for the CEO of a nonprofit.

What I found is that executive salaries are all over the map. There are nonprofits where the CEOs don't take a salary at all and others where the CEO or executive director makes over a million dollars annually. What's appropriate? What's right?

If we compare it to the private sector, we find that there is, if anything, a massive underpayment of executives in the nonprofit space. Nonprofit CEOs and executive directors generally make a fraction of what their counterparts in the private space make. But at the same time, those of us who are giving, those of us who are donating, want every dollar to go the end cause, towards curing cancer or feeding the hungry, not towards paying for nice cars or fancy dinners.

One of the first articles I found addressing this issue was written by Rosetta Thurman published in The Chronicles of Philanthropy, titled “Nonprofit CEOs Who Want For-Profit Salaries Should Work At For-Profit Companies”. She specifically looked at the salary of Roxanne Spillett, the CEO of Boys and Girls Club of America. In 2008, it was reported that Spillet's salary exceeded $900,000, yet that same year, several Boys and Girls Clubs had to close down due to the tough economic climate.

Stories like this immediately bring to mind the question of whether a CEO whose taking in a significantly high salary while the core cause of the nonprofit is suffering, has the nonprofit's best interest at heart. Are the CEO's goals really aligned with the nonprofit and the cause? Is the CEO really the right person to be running the organization?

Thurman goes on to make several clear and significant arguments against these salaries, such as pointing out that high compensation does not necessarily make for an effective leader. She also points out the importance of paying staff members an adequate salary for their work, “Now if we defended increasing the salaries of other nonprofit staff members as much as we do for CEO's, the sector would be in much better shape…No matter how great they are, no successful nonprofit CEO raises millions singlehandedly.”

Of course, there is an opposite perspective and this was best expressed by Dan Pollata in a recent TED talk. If you haven't seen it, it's worth a watch. Pollata's talk is titled, “The Way We Think About Charity is Dead Wrong”. Pollata essentially makes the argument that expensive executives are often a bargain, bringing in more than they spend. To pay an executive a million dollars, that's not a million dollars that's coming away from the cause, a good executive makes back their salary several times over.

Pollata has a compelling argument, but as Thurman points out, salary does not clearly correlate to the success of the nonprofit organization. Additionally, there's the issue that even if it's not zero sum game, it is zero sum overall. That money, that executive salary, is coming from something else. Possibly from a different charity that is equally deserving and has a lower overhead, possibly zero salary.

Complicating all of this are industry differences. The head of a medical nonprofit, one that is doing high-end research and cancer treatments, is probably not just a doctor but a specialist, as well. It would be absurd to suggest that they should be making significantly less than they would in the private sector. A high salary for medical specialists is reasonable, especially if the organization's sole purpose is to do medical research. Considering the normal salaries oncologists make, commonly in the several hundred thousand dollar range, specialists working to do good shouldn't make less than that. On the other side, an art-focused nonprofit CEO or executive director does not need to have nearly as high of a salary to match private sector salaries.

Based on the information I gathered from these articles and several others, it's time to look at some empirical data. I pulled up some information from roughly 6,000 nonprofits, mostly larger organizations, and I analyzed their CEO salaries, looking both at the raw salaries and the relative salaries, as a percentage of budgets. After careful analysis, I determined a couple of things:

First of all, for the most part, nonprofit CEOs are reasonably paid. In fact, a majority of the salaries are significantly less than what people in comparable jobs could be making in the private sector. It's clear that people involved in nonprofits, the vast majority of nonprofits, are doing a good job running the organizations and are relatively under-compensated for their responsibilities and their talents.

Second, there are clear differences in compensation. For example, two of the highest paid leaders in the nonprofit world are both heads of different universities – Yale and Vanderbilt. Both CEOs are actually reasonably paid based on the size of the organization they are running. However, the CEO of Vanderbilt is making twice as much for running an organization of roughly the exact same size.

Third, there is no magic formula. I was hoping to find one. I was really really hoping to find one. I love data and I thought, hoped, and expected to be able to say a salary over 10% or over $250,000 is reason for alarm, but it just doesn't work that way. There are too many variables to be able to get down to a simple answer of when executive compensation is excessive. That's not to say we didn't find organizations whose executive salaries raised a red flag; going through 6,000 nonprofits, we found about 20 nonprofits that we have decided to flag as significant concern to our donors.

But they were the minor exception. So, moving forward what will we be doing? Fundamentally, it is our job here at Givalike to give donors better information and help them make the right decisions about which nonprofits are worthy of their money. We are going to be doing two things:

One – we will be warning our users about the very small percentage of nonprofits that we have identified as unacceptable. These are nonprofits where the CEO is taking a substantial percentage of the revenue while providing limited to no services.

Two –we will be publishing executive salaries. It is our philosophy that we can't decide for you, you have to decide for yourself. We can help you by giving you information, such as providing executive salaries to help you make a decision that you're more comfortable with. For those initial 6,000 nonprofits we analyzed, those CEO salaries are now included on the nonprofit profile pages.

We will be continuing to examine this data and continuing to help identify and vet nonprofits and to look at suggestions from you on how we can be doing an even better job.

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